This is the experience of a big, well informed, articulate, tech savvy investor. Now imagine if a 78 year old investor with poor communication skills went to a Mutual fund (sahi hai) to redeem his units and he was told “your units are pledged, go take a walk” – what would have he done? Read on

‘Erroneously pledged’ units!

Let me introduce myself as Mr. A, a 46 year old long term investor in mutual funds, residing in a major South Indian city. I’m a direct only investor, who transacts online with fund houses, and absolutely at ease with all logistical gymnastics. I’ll narrate in first person the ordeal I went thru to reclaim my units that were ‘pledged erroneously’ by that black hole called the ‘back office’ of the fund house. I’ll refer to this Fund house as X in this narration. X in question is not another fund house, but a biggie!

Climax first. Today I got the full amount for the redeemed units credited to my bank a/c, thus ending a nearly 15 year relationship with X. The purpose of this blogpost is educational. As they say, the wise learn from the mistakes of others.

PS: THIS story is in first person, I (pv subramanyam) have not made any changes, but Mr. A sent me this article only AFTER he received the full redemption amount!

I held units in X’s flagship funds jointly with my wife and mom in ‘e or s’ mode. Recently I had to redeem some units, and went online to transact. While I have units worth in seven digits, a strange message popped up that read ‘there are no units available for sale’! I was taken aback, as one could clearly see the units and the marked to market value clearly on screen. Then I called X’s customer service number to check. After some investigation, the customer service representative (CSR) told me that the units were ‘on hold’. When I pressed for the reason, he promised to revert after checking with his back office! But on screen I couldn’t see the status of the units, if they’re “free or on hold”. When I downloaded the statement immediately, I could clearly see that recently there was a “pledged ()” transaction on a single date, covering all my units held in two different folios. The said “pledged ()” transaction was made on the same date in both the folios! But I never got an email, or text message alerting me of such a transaction!

It hit me like a beamer, and still recovered my composure to ask the CSR to raise two tickets: one to dispute the pledge transaction, and the other to know the reason or how were the units pledged? With this I started building an audit trail, as I smelt something very wrong. Thus day 1 passed  super tense, and I made calls every few hours to check the status. But the promised turnaround time was 2-3 days! Then I traced my relationship manager’s number and was lucky to reach her! She was all ears and said that ‘such errors do happen…..back office etc.’ and promised to escalate to the right teams and revert. Thus ended day 1.

Day 2 began on a tense note. I made inquiry with my bank, and they had no clue of any pledge. Also I’ve an annual subscription to CIBIL’s credit report, and when I checked with the latest report, there was no reference to a ‘pledge’ and related loans, if any. I don’t hold units in demat form, and I’m a direct investor with mutual funds. And that ruled out any ‘broker pledge’ shenanigans, quite common in India. Day 2 evening, I got a call from the back end team that they’re looking into this and will resolve this in a day or two. Meanwhile I also got a similar confirmation from my relationship manager. Now I sounded out

Mr. P V Subramanyam, so that influencers like him know of my experience.

Day 3 was quite humdrum, and my mind was only on this issue. So I made usual calls to the customer service knowing fully well that they can be of little help. But somehow being in touch with the company that had landed me in this spot, gave an assurance and hope! Call it a tortured mind’s solace seeking behavior! On day 3 I got a call from my relationship manager that the “transact access related issue” will be resolved and she checked with me for my bank a/c number! But I protested that this isn’t an access issue, but something more sinister. Also I wanted to understand how this ‘pledge” was created. I also got an email from X, underscoring the same point that my ‘online transact facility’ is now available, and that I can transact online. Then I realized how in a matter of 48 hours, an ‘erroneous pledge’ by the back end team story was spun to an ‘online access right’ issue. Immediately I made up my mind to call it quits with mutual fund house like X!

Day 4 morning I checked online and found that I could now transact. Pronto, I redeemed all my units held in both the folios! I downloaded the latest statement and saw that on the same date that I got the email giving my ‘online transaction rights’, there was an “unpledged ()” transaction on all the units held in both the folios! My worst fears were now confirmed, and proved right my decision to quit X for good.

This experience has left a permanent scar in me. I’ll never ever forget those four harrowing days when my money was on the hook, thanks to an erroneous pledge! I should acknowledge the role of my relationship manager during those tense days. She was empathy personified, was super responsive, and did what she could. I understand her limitations and compulsion.

Till date X has not come clean on who created the pledges, and how it was created! Those pledges were taken off as mysteriously as they were created. I have documentary evidence and email trails just in case the regulator is interested to get to the bottom of this case.

My interest to share this is to alert investors about this yet another risk element.Eternal vigilance is the price we pay to secure our assets! That’s the lesson from this experience.

My comments on this will appear in a day or two, after I get the Amc’s side of the story, if I get it. I refuse to chase them for a reply, and I will not name them. Like A says, it is a famous one!